I don’t have to tell you that prices are going through the roof. From the gas in your car to the food on your table, everything’s shooting up. And I’m sure this is piling anxiety onto your lives.
So today, I’m going to focus on food prices – what’s causing their rise, and what you can do about it.
Last month, global food prices hit their highest level since 2011. Overall, the cost of feeding your family has gone up 7.4% over the last year. Within that, the cost of meat, fish, poultry, and eggs shot up 12.2%.
I wish I could tell you this trend will reverse soon. But I think it’s just getting started.
So you need to prepare yourself for the fact your grocery bills will be even higher over the coming months.
Today, I’ll show you some ways to claw some of that extra spend back.
Why Your Grocery Bill Has Increased
But first, let’s look at the three main reasons why food prices are so high – and likely to go higher.
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Raw Material Supply Crunch
If you can’t wrap or contain it, you can’t ship or sell it. That’s certainly the case with food and beverages. There has been a shortage of wrapping materials, such as plastic, aluminum, and paper, since the pandemic.
I’ll just take aluminum as an example. One reason for the shortage was that more people were drinking at home during the lockdowns, rather than going out. That led to a shortage of aluminum to make cans.
The supply crunch pushed up prices of raw material commodities like steel, aluminum, and copper.
Then, once the world opened up after the 2020 lockdowns, pent-up demand outpaced supply. This pushed prices up even further. From January 2020 to January 2022, aluminum went up by nearly 80%.
Recently, the aluminum supply problem got worse. Russia accounts for about 11% of the global aluminum supply.
After Russia invaded Ukraine on February 24, investors feared the U.S. and E.U. might impose sanctions on Russian aluminum producers.
So far, they haven’t. But the uncertainty has pushed aluminum to new records.
Since February 23, it’s up by almost 8%.
Shortfalls in packaging material make it more costly and difficult to wrap and ship food.
Retailers raise the price of packaged products to compensate for the higher cost. Those increases show up in your grocery bill.
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Labor Shortage
There’s been a widely reported labor shortage in the U.S. since the pandemic. In 2021 alone, 41 million Americans quit their jobs. The media is calling it the “Great Resignation.”
Many have moved on to other roles. But the demand for goods increased as the world opened up after the lockdowns. And now, some sectors are severely understaffed.
Trucking is one such area. The U.S. is facing a massive shortage of truck drivers.
Trucks carry three-quarters of U.S. freight between ports, manufacturers, distribution centers, and stores. A shortage of drivers means a delay in transporting these goods along the food chain.
We need 80,000 more drivers to meet current demand.
In addition, there’s a global shortage of dockworkers to load and unload container ships.
Delays at U.S. ports, especially in Southern California and along the west coast, began during the pandemic. These delays were compounded by congestions around the world, from Europe to China.
More recently, staff shortages due to illness are putting pressure on shipping companies. And that’s causing delays in the supply chain.
These delays mean fewer products make it to the grocery store. I’m sure you’ve already seen gaps in the shelves in your local store.
But demand for these products hasn’t changed. So stores are charging more for them.
And the labor shortage isn’t just affecting trucking and shipping.
Fewer people working in packaging, processing, transporting, or stocking food makes it harder for stores to service consumers’ grocery needs.
To employ more people, they have to make their job openings more attractive – higher pay, better conditions, etc.
When employers have to pay more to attract labor, they pass those costs on to consumers.
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The Russia-Ukraine War
Of course, the ongoing problems mentioned above have recently been compounded by what’s going on in Ukraine.
Since Russia invaded Ukraine last month, mega companies, including Microsoft and Apple, have stopped their Russian operations.
Some companies, including Coca-Cola, have ceased operations in the Ukraine to protect their employees.
This has caused supply chain disruptions around the world to worsen.
That impacts certain supplies, like food, more than others.
For example, together, Russia and Ukraine account for nearly one-third of the world’s wheat supply. And they produce 19% of the world’s corn.
Russia is the fourth-largest producer of fertilizer. Ukraine is the largest producer of sunflower oil, followed closely by Russia.
These disruptions impact the entire global supply chain. This has caused prices to rise further.
Since February 23, wheat prices have risen by 47%. Corn prices are up 8.6%.
U.S. food producers get most of their basic food commodities domestically.
But any drop in production and exports from Ukraine and Russia would reverberate globally. The international supply chain would have to source extra product from other sources to meet demand. This would push prices up everywhere.
In today’s world of global dependencies, this would also be the case with many other commodity prices.
That translates to price increases in products made from those basic ingredients, from frozen corn to oatmeal.
How To Protect Yourself From Rising Food Costs
I expect food prices to keep rising through this year. The labor shortage won’t resolve overnight.
And now, the war in the Ukraine will intensify the raw material shortages and supply chain issues I outlined above.
There are three ways to deal with rising food prices.
The first is obviously to buy less. That way, you can make your budget stretch further.
Think about the things you buy at the store every month. Some are nice to have, but you don’t need to have them. If you already have orange juice at home, maybe skip the pineapple juice.
Also, if you find yourself spending too much money on single-use sandwich bags for the kids’ lunches, you can buy reusable ones. You can find these on Amazon or at Target and Whole Foods. All these little things add up.
Luckily, cutting back isn’t your only option. The second option is to buy in bulk. That way, you can lock in prices now, before they rise any further.
Consider a membership to a wholesale store like Sam’s Club or Costco. They offer such great deals on bulk items, the membership fee often pays for itself.
Finally, there’s a third option that doesn’t involve the store at all. And that is, to make some of that money back in the stock market.
One of the best ways to do that right now is with the Invesco DB Agriculture Fund ETF (DBA). This exchange-traded fund (ETF) includes wheat, corn, soybeans, and other food staples.
DBA is comprised of futures, not companies, in these areas. That means it captures more isolated price movements compared to companies that may use or produce these products.
Happy investing, and I’ll be in touch again soon.
Regards,
Nomi Prins
Editor, Inside Wall Street with Nomi Prins
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